The steel industry has long complained Chinese steelmakers are wreaking havoc on the world market because China built too many steel mills during its economic boom and is now dumping excess steel abroad.
China is losing an estimated average of $75 a ton on steel sold in the United States, and analyst World Steel Dynamics said that's led an extended pricing death spiral for hot-rolled band.
At the World Steel Association conference in Chicago last week, a Chinese steel executive acknowledged overcapacity in Chinese mills.
Dongying Wu, president of economics and management research for Boasteel Group Corp., foresees a wave of consolidations in China's steel industry to take more capacity offline.
"The supply is much bigger than the demand," Wu said. "Economic committees have slowed down the industries that consume steel, as well as the steel plants themselves. They face an issue of overcapacity, and we must adjust our structure."
China is cutting back on production and was likely to take capacity offline because of mergers and acquisitions, which would result in less dumping, Wu said through a translator.
But it could take a decade to fully fix the country's overcapacity, which has been estimated at more than 300 million tons.
"The government is carrying out reforms of state-owned enterprises," Wu said. "You will see a lot of mergers and acquisitions. But it will take a long time to reduce overcapacity. Korea and Japan took 20 years to get rid of overcapacity. It will take 10 years at least."
Mainland China currently makes and consumes 47 percent of the world's steel, according to the World Steel Association. State-supported Chinese steelmakers are disrupting the global market by dumping steel they can't sell at home in countries across the world, which often then unload their own unsold steel for less in the United States.
Exports from China are on pace to hit 100 million tons this year, up from just 53 million tons in 2013, according to Wyatt Investment Research.
The whole problem is Chinese steelmakers don't have to follow the same laws of the free market everyone else does, U.S. Steel Chief Executive Officer Mario Longhi said at the World Steel Association Conference.
"Free markets address overcapacity in an appropriate manner: capital investment is curtailed," he said. "We have yet to see a significant attempt for the Chinese environment to correct itself."
Domestic demand for steel in China fell 3 percent last year, and 5.2 percent so far this year, Wu said. Production has since slowed down by 2 percent.
"It's a cause of concern," Wu said. "Businesses in China have entered a very hard period of time."
His estimate is the downturn will last for at least two or three years.
The Chinese steel industry will have to adjust to waning demand, rising labor cost and new environmental rules the government is imposing, Wu said.